Articles

We’ve All Heard the News

On July 23, 2009, Premier Gordon Campbell and his Finance Minister Colin Hansen announced that B.C. would harmonize the Provincial Sales Tax (PST) with the Goods and Services Tax (GST) effective July 1, 2010. The new single sales tax rate for the B.C. Harmonized Sales Tax (HST) will be 12%.

The Business Council of British Columbia reacted quickly to the news and issued a press release in favour of the change adding “A harmonized sales tax regime will stimulate investment, bolster BC’s competitive position, and raise productivity –- thus leading, over time, to higher real wages and incomes.”

Other, less positive reactions to the news has been well documented in the news media and on-line. The average British Columbian is angry, as the new HST results in a highly visible shift of taxation from businesses to individuals. This anger is understandable as household budgets are increasingly being squeezed in these recessionary times.

Lower Production Costs Could Lead to Lower Prices

It’s not all bad news for individuals as the HST should, over time, result in lower prices. Currently, PST is applied at every step in the creation of a product. The multiple PST charges are included in the purchase price that consumers pay in the store even though they don’t see the PST in the price that they pay.  Of course, PST can also apply on the final purchase price. Under the new system, the final consumer of the product is ultimately responsible for paying the HST. Businesses will have lower production costs which, in theory, should allow for a reduction in the purchase price to consumers. Time will tell whether or not businesses pass on the savings to their customers.

Reduced Compliance Costs

Compliance and paperwork costs for thousands of B.C. businesses will decline when B.C. integrates its PST with the GST. Under the present system of separate federal and provincial sales taxes, business are forced to deal with two sets of tax rules, administrative authorities and compliance requirements. Tax compliance and other regulatory costs will be lower under the new HST system, savings that will especially be beneficial to small business owners.

It’s All in the Details

The July 2009 announcement provided few details on how exactly the HST will work. While it was hoped that the September 1, 2009 Budget Update would fill us all in on the details, little further information was provided. It’s difficult for businesses to plan for the HST without knowing the details. We should hope that when all is revealed, the provincial government listens to the concerns raised by British Columbians and that relief is granted where warranted.